THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

[05:30:05] ALISON KOSIK, CNN ANCHOR: But it's not the content of the leaks some of them want to look into, it's who let the information go public.

JOHN BERMAN, CNN ANCHOR: The search for a new Labor secretary begins again. Andrew Puzder, he's out less than 24 hours before a scheduled hearing. We will tell you who could be next in line.

KOSIK: And, the president bucking decades of U.S. policy in the Mideast. Is a one-state solution really on the table?

Welcome back to EARLY START. I'm Alison Kosik.

BERMAN: I'm John Berman. Thirty minutes after the hour. This morning in Washington, new calls for answers, but to very, very different questions. Certain Republicans not looking for more information about our reports of constant contacts between Trump campaign advisers and Russian officials nor are they looking for more details about the call with the ambassador that ultimately brought down former national security adviser Michael Flynn. No, they want to know who leaked the information.

Jason Chaffetz, the chair of the House Oversight Committee, and Bob Goodlatte, the Judiciary chair, they've written the Justice Department's inspector general seeking an investigation into whether classified information was mishandled.

They say, "We have serious concerns about the potential inadequate protection of classified information. Federal laws and the constitution distinguish law enforcement investigation authorities from intelligence collection authorities for good reason. The release of classified national security information can, by definition, have grave effects on national security."

Remember, they want to know who leaked the information. Jason Chaffetz, the chair of the Oversight Committee, has said his committee does not want to look into the circumstances that led to Flynn stepping down or the substance, apparently, of the CNN report about Russian contacts with Trump campaign advisers.

KOSIK: But, a bipartisan pair of senators is very interested in the facts surrounding Flynn's downfall. Chuck Grassley and Dianne Feinstein, the senior Republican and Democrat on the Senate Judiciary Committee, they've written to the Justice Department and the FBI. They're looking for an official briefing in two weeks, along with transcripts of Flynn's call with the Russian ambassador that happened last December.

And in their letter they wrote, "Media reports raise substantial questions about the content and context of Mr. Flynn's discussions with Russian officials, the conclusions reached by the Justice Department, and the actions it took in response, as well as possible leaks of classified information by current and former government employees."

BERMAN: President Trump, again, not focused on the substance of the accusations or the reports about constant contacts between his campaign and the Russians. No, he, too, is talking about the leaks. He took direct aim at the Intelligence Community, accusing it of leaking. He talked about the media for reporting these leaks. This was all during a news conference at the White House with carefully selected questions. CNN's Jim Acosta was there and has the latest.

(BEGIN VIDEOTAPE)

JIM ACOSTA, SENIOR WHITE HOUSE CORRESPONDENT: John and Alison, President Trump is defending his former national security adviser Michael Flynn despite the fact that he just fired him this week. At a news conference with Israeli Prime Minister Benjamin Netanyahu, the president slammed the news media and leakers in the government for disclosing that Flynn lied about his calls, with the Russian ambassador, to the vice president. Here's what the president had to say at that news conference.

DONALD TRUMP, PRESIDENT OF THE UNITED STATES: General Flynn is a wonderful man. I think he's been treated very, very unfairly by the media. As I call it, the fake media, in many cases. From intelligence, papers are being leaked, things are being leaked. It's criminal action -- a criminal act, and it's been going on for a long time, before me, but now it's really going on. And people are trying to cover up for a terrible loss that the Democrats had under Hillary Clinton.

ACOSTA: The president declined to answer questions from CNN about reports that Trump advisers were in contact with the Russians during the campaign and we're learning that Vice President Pence is focused on getting to the bottom of how he was misled. Pence was not informed about the matter for roughly two weeks after the president learned the Justice Department had questions about Flynn's actions -- John and Alison.

(END VIDEOTAPE)

BERMAN: So you heard Jim report there that the vice president wants to get to the bottom of how he was misled. Well, the administration denies that. They deny that the vice president is looking for answers into how he was misled before the Flynn firing. An administration official says that the vice president has moved beyond the topic.

Also, a senior Republican source with knowledge of the investigation into the contacts with Russian officials says that it is likely that Gen. Flynn will be called to testify. This, before the Senate Intelligence Committee which is looking into this matter. James Clapper, the former director of National Intelligence -- also, former CIA director John Brennan -- they might also be called in. This is to figure out, again, the extent of those contacts and perhaps also, ultimately, to find out how much the president or then-candidate Trump knew about them.

An intelligence spokesman says that Gen. Flynn's access to classified information has been suspended pending review. That is a move considered to be standard procedure.

KOSIK: OK. The Trump administration looking for a new Labor secretary this morning. Andrew Puzder withdrawing his name just one day before his confirmation hearing amid growing concerns he would not be confirmed. It's a blow to the administration but also to Senate Majority Leader Mitch McConnell. He has said Puzder would be one of the best Labor secretaries in history. McConnell's wife even held the Labor job under President George W. Bush.

[05:35:18] But it looks like Andrew Puzder also had a checkered past as the CEO of the company which owned Hardee's and Carl's Jr. Decades ago, Puzder's ex-wife levied charges of domestic abuse against him, which she later dropped. The confirmation hearing was delayed five times and he revealed recently that the hired a housekeeper who was undocumented. Puzder's company is facing numerous labor lawsuits and he's also been a critic of Obamacare. He's criticized the $15 minimum wage and also the accuracy of the unemployment rate.

Well, now the search is on for a new Labor secretary. Already said to be on the president's short list -- you see them right there -- former National Labor Relations board members Peter Kirsanow and Alexander Acosta, as well as former South Carolina labor secretary Catherine Templeton.

BERMAN: All right. Let's talk about Washington and the investigations that are, and are not, going on. We're joined by "CNN POLITICS" reporter Eugene Scott. Eugene, thanks so much for being with us this morning.

KOSIK: Good morning, again.

EUGENE SCOTT, CNN POLITICS REPORTER: Good morning.

BERMAN: Look, the Senate Intelligence Committee is broadly looking into Russian contacts with the Trump campaign. The House is a different story. Paul Ryan seems content to let this sort of sit around. And the chairs of the Oversight Committee and the Judiciary Committee, they're not investigating the substance of our reports --

SCOTT: Sure.

BERMAN: -- or perhaps how Gen. Flynn was pushed out. They care about the leaks, they say.

SCOTT: Right.

BERMAN: There's a big difference there.

SCOTT: There's a huge difference. What's, I think, fascinating is that the Democrats are pretty unified in terms of how they want to approach this, but you have Republicans taking at least four different approaches right now. You see -- you have some Republicans who want to see a much broader investigation in -- regarding the relationship between the Trump campaign and Russia.

You see some who just want to focus on this Flynn thing. Others want to look at the leaks coming from the Intelligence Community, and some just want to move on and don't want to delve into this any further, but I don't think that's going to happen.

KOSIK: There's a lot of irony in that. You see the president's response. He's blaming a lot of this, especially the downfall of Gen. Flynn, on leaks. But the irony here is that it's the leaks -- the WikiLeaks that Donald Trump, as the campaigner, was so thrilled about.

BERMAN: Right.

KOSIK: Listen to some of what we put together for the -- on the campaign trail.

(BEGIN VIDEO CLIP)

TRUMP: This WikiLeaks stuff is unbelievable. It tells you the inner heart. You've got to read it. Through WikiLeaks today, it's just been shown that this is, as I've been saying, a rigged system. WikiLeaks -- some new stuff -- some brutal stuff. I may not read it to you but the hell with it. Just trust me, it's real bad stuff. So today, I guess WikiLeaks, it sounds like, is going to be dropping some more. WikiLeaks, I love WikiLeaks.

(END VIDEO CLIP)

KOSIK: So, Paul Begala, the counselor for President Clinton, wrote an op-ed on cnn.com, saying Trump, stop whining.

SCOTT: Yes. Yes, it's quite the pivot, to say the least. But the reality is, even if this is criminal involvement -- leaking this information, and there are many legal experts who say they are -- what the Republican Party is going to have to try to do is convince people that that's more important than the alleged national security concerns that could come from this information, and I think they're going to have a really difficult time doing that.

BERMAN: Yes. I think a lot depends on how much more information comes out, how quickly, and what that information is. We're going to have to wait and see. Let's talk about some of the confirmation battles right now. Andrew Puzder, the nominee for Labor secretary, he pulls out, right? And the Democrats were unified against him --

SCOTT: Sure.

BERMAN: -- you know, labor groups did not like him at all. Ultimately, I'm not so sure that's what made the difference here. What seemed to make the difference is the Republicans were wavering not on labor issues but on really personal issues.

SCOTT: Right.

BERMAN: You know, details of his divorce that come out. Details about an undocumented worker who had worked for him. And also, frankly, his position on illegal immigration --

SCOTT: Sure.

BERMAN: -- which is counter to where the president's was.

KOSIK: Now it's interesting to see who could be in the running. They have a more traditional and more diverse --

SCOTT: Sure. Yes, absolutely. So, there was no clear path to victory. Every single thing that they -- Republicans were hoping would have made Puzder more successful, he failed them and there was no way to communicate to people that he would be the best person for the economy, especially considering that this was an issue that Trump campaigned on so hard.

I think what's also interesting is, as you remember, this is the first cabinet where there has not been one Hispanic nominee in about 30 years and if you look at those finalists all of them are very diverse. You have someone who's very active in the black community, the Hispanic community, and a woman. And it seems very much so that while they are very qualified, according to the Trump campaign, they paid attention to that, as well.

KOSIK: And we are waiting to see exactly who of these three will actually be the nominee. All right, Eugene Scott, thanks so much.

SCOTT: Thank you.

BERMAN: All right. For the first time in decades, the U.S. says it is ready to consider an alternative to the two-state solution in the Middle East. We're live in Jerusalem with the latest breaking news on this big policy shift.

(COMMERCIAL BREAK)

[05:44:10] (BEGIN VIDEO CLIP)

TRUMP: I'm looking at two-state and one-state and I like the one that both parties like. I'm very happy with the one that both parties like. I can live with either one. I thought for a while the two- state looked like it may be the easier of the two but, honestly, if Bibi and if the Palestinians -- if Israel and the Palestinians are happy, I'm happy with the one they like the best.

(END VIDEO CLIP)

BERMAN: That was President Trump backing away from decades of U.S. policy in the Middle East. He says he would not insist on a two-state solution to try to resolve the Israeli-Palestinian conflict. That big shift came at a joint news conference before, actually, his sit-down meeting with the Israel Prime Minister Benjamin Netanyahu. He did urge the Israeli prime minister to curb settlement construction. The big question now is what is the reaction in Israel to all of this?

[05:45:00] We're joined by CNN's Oren Liebermann, live in Jerusalem. Oren, you know, the shift from the two-state to not necessarily the two-state, that is a big difference.

OREN LIEBERMANN, CNN CORRESPONDENT: It's a major break with some five decades of U.S. foreign policy and just as big a break with the international community, which has held by a two-state solution. An Israeli state and a Palestinian state is the only realistic and workable solution to the Israeli-Palestinian conflict. But, President Trump essentially said two states, one state, whatever. As long as both sides agree to it, we'll make it work and I'm happy with it.

Prime Minister Benjamin Netanyahu gave a different answer when he was pushed on whether he still supports a two-state solution. He effectively dodged the question, saying he doesn't want to deal in labels, he wants to deal more with substance. Well, for those answers, Prime MinisterBenjamin Netanyahu's right-wing government is absolutely celebrating. Many have said this is the end of a Palestinian state. They're calling for more settlement construction and some are even calling for a partial or complete annexation of the West Bank.

As for that line where Trump said it would be good if Israel could halt settlement construction for a bit so they could work on a peace deal, Netanyahu's government has effectively ignored that line. But that's what Palestinian leaders are seizing upon, saying President Mahmoud Abbas, the Palestinian president, still supports a two-state solution and it's on Israel to heed that line to stop settlement construction so they can get back to a peace process.

John, what's clear here is that Trump's Middle East policy is still very far away from being formulated. It's not articulate, it's not clear. We've seen him change his policy position since the campaign. He's backed away from his promise to move the embassy to Jerusalem. He's changed his stance on settlements, saying their expansion is not helpful to the peace process. So, it still remains to be seen what his actual policy is and where it will go from here.

This press conference, what he said about a two-state solution, a one- state solution, not helping matters at all when it comes to understanding what the Trump administration's policy is.

BERMAN: And, Oren, quickly, just a one-state solution, so our viewers understand, what would that mean?

LIEBERMANN: Well, from Israel's perspective, and that's effectively what it would be, Israel would annex the West Bank and would or should give voting rights to all Palestinians, and the issue there is that then you have roughly an equal number of Israelis and Palestinians. You either have a democracy where there's equal rights and all of them can vote, in which case it's no longer a Jewish state. You would soon have, demographically speaking, an Arab majority, in which case Israeli -- a greater Israel, in that case -- would no longer be a Jewish state.

And that's while you'll hear -- and you heard Secretary of State Kerry talk about it and many others, both from the U.S. and the international community -- if Israel annexes the West Bank it has a choice to make. Either everyone gets the right to vote and you're no longer Jewish or Palestinians don't get the right to vote and you're no longer democratic. That is what a one-state solution would, in all likelihood, look like.

BERMAN: And that's why it is so complicated. Oren Liebermann, thank you for that context in Jerusalem.

KOSIK: All right. The stock market hitting an all-time high yet again this morning but it just accomplished something Wall Street hasn't seen in 25 years. I'm going to tell you what that is, next.

(COMMERCIAL BREAK)

[05:53:45] BERMAN: With the growing scrutiny over the Trump campaign's communications with Russia, newly-minted Secretary of State Rex Tillerson holds his first meeting with his Russian counterpart, Foreign Minister Sergey Lavrov. This is happening at the G20 Summit in Germany. Let's go there live and bring in our international diplomatic editor Nic Robertson. Nic, this is a big meeting. Aside from the swirl of reports about campaign goings-on, the relationship between the U.S. and Russia is crucial and there are a lot of open questions.

NIC ROBERTSON, CNN INTERNATIONAL DIPLOMATIC EDITOR: Sure, and the stakes just got raised literally in the last few minutes, John. From Moscow, we're hearing from the defense minister there, criticizing what Gen. Mattis said yesterday to NATO allies. Yesterday, Gen. Mattis, in Brussels, said that U.S. diplomats should negotiate with Russia from a position of strength. The defense minister in Moscow just said that negotiating from a position of strength with Russia will be fruitless, so that's the tone that Secretary of State Tillerson goes into that meeting with Sergey Lavrov in just a couple of hours' time.

They will be talking about how their two countries can cooperate tackling ISIS, working on counterterrorism. But, Tillerson also going in with a very clear message for Russia over Ukraine, that going beyond what the European allies are saying, who the United States says it supports, that Russia should go by the Minsk agreement -- get its involvement out of Ukraine. The United States White House position is that the Russian troops should pull out of Crimea. And we've heard from Moscow, from the Kremlin, pushing back strongly on that in the past 24 hours.

[05:55:15] You can see where there's things that the two countries can cooperate on. We're hearing sort of an escalation of the rhetoric of tensions between the two capitals right now and, potentially, part of this because the Kremlin realizes it's lost dialogue with a partner, Michael Flynn. Now he's out of position, John.

BERMAN: All right. Nic Robertson for us in Germany right now at the G20 Summit. One of the topics there that may come up with at least some of those nations is the future of the U.S. funding for NATO, which could very much depend on whether NATO allies decide to pay up. The new Defense secretary, James Mattis, he was at a Brussels meeting with NATO defense ministers and he did reaffirm U.S. support for the alliance but he said that members must be willing to pull their weight.

(BEGIN VIDEO CLIP)

JAMES MATTIS, U.S. DEFENSE SECRETARY: It's a fair demand that all who benefit from the best defense in the world carry their proportionate share of the necessary cost to defend freedom. And we should never forget that ultimately it is freedom that we defend here at NATO.

(END VIDEO CLIP)

BERMAN: The NATO secretary general says the message from the Secretary of Defense is on target and completely fair, and they need to do a better job of burden sharing.

KOSIK: All right, let's get a check on CNN Money Stream this morning. Looks like all the turmoil in Washington not bothering Wall Street one bit. The Dow, Nasdaq, and S&P 500 soaring to record highs on Wednesday, and get this. It marks the fifth straight day of all-time highs and the first time all three of the major averages have achieved that feat since January of 1992. That is according to FactSet.

Ah, but the stock market may take a breather today to make it six in a row. It looks like there could be a pause in the action. Futures are down right now but the losses are slim. Stock markets in Europe are moving lower.

One of the big factors fueling the stock market rally is President Trump's promise of tax reform, but in a meeting with retail CEOs, Trump says one company may not like the outcome.

(BEGIN VIDEO CLIP)

TRUMP: We're going to simplify, very greatly, the tax code. It's too complicated. In fact, H&R Block probably won't be too happy. That's one business that might not be happy with what we're doing. Other than H&R Block, I think people are going to love it.

(END VIDEO CLIP)

KOSIK: Now, Trump has previously said the tax code would be so simple after he's done with it that it would put tax preparers out of business, but the CEO of H&R Block recently told Christine Romans he supports a simpler tax code.

(BEGIN VIDEO CLIP)

WILLIAM COBB, CEO, H&R BLOCK: The president's right. We should reform the tax code. I think that there is ways that we can streamline the tax code. A simple example I often give, there's five different definitions of a child in the tax code and, frankly, we have to train our people on this -- on those different -- yes.

CHRISTINE ROMANS, CNN CHIEF BUSINESS CORRESPONDENT: Really? Five different definitions of a child?

COBB: Yes, and small -- the burden on small business is even higher than on individuals. I think there are some common sense solutions to that.

(END VIDEO CLIP)

KOSIK: I think you can argue with having a simpler tax code in this country. Before we go I want to say goodbye to John Berman. This is his last day on EARLY START. He is, of course, anchoring the 9:00 a.m. It's been a pleasure filling in with you.

BERMAN: It's been great to be here with you, Alison. Thank you all for being with me this last four and one-half years on this show. I will miss it. You know, I will miss you all, terribly. But tune in at 9:00 every day. I'll be on 9:00 to 11:00 every day as long as they let me or until they change the locks.

KOSIK: All right, thanks for joining us. I'm Alison Kosik.

BERMAN: And I'm John Berman, one last time. "NEW DAY" starts right now.

(BEGIN VIDEO CLIP)

TRUMP: General Flynn has been treated very, very unfairly by the fake media.

SEN. JOHN MCCAIN (R), ARIZONA: We need an investigation and we need to have questions answered.

TRUMP: I'm looking at two-state and one-state. I can live with either one.

NETANYAHU: Israel stands with you.

UNIDENTIFIED FEMALE: There was a pretty massive cloud hanging over Puzder's head.

UNIDENTIFIED MALE: Andrew Puzder will not be the next Labor secretary.

(END VIDEO CLIP)

ANNOUNCER: This is NEW DAY with Chris Cuomo and Alisyn Camerota.

ALISYN CAMEROTA, CNN ANCHOR: We want to welcome our viewers in the United States and around the world. This is NEW DAY. It is Thursday, February 16th, 6:00 here in New York.

Up first, the Trump administration dealing with the fallout of Michael Flynn's resignation. Two House Republicans now asking the inspector general to investigate leaks of classified information following the ousting of former national security adviser Michael Flynn.

CHRIS CUOMO, CNN ANCHOR: And yet, the Republicans are refusing to a broad probe or investigation of that Flynn situation that led to the leaks. We have another bizarre twist, as well. The president is now defending the very man he forced out and fired, calling him a wonderful man whom he says was treated unfairly. Now, this isn't the only high-profile exit. You also have Trump's Labor nominee withdrawing his name because of ethical issues.

All this, as President Trump has decided to break with decades of U.S. foreign policy on Mideast peace. We're in day 28 of the Trump presidency.